tv Janet Yellen Testimony on U.S. Monetary Policy and the Economy CSPAN June 21, 2016 10:39pm-1:11am EDT
>> during the election i had the occasion of meeting a woman who had supported me in my campaign. she decided to come and shake my hands for photograph. a wonderful woman, she wasn't asking for anything, and i was very was very grateful that she took the time to come by. it was an unexceptional moment except for the fact that she was born in 1894 and her name was marjorie lewis and she was born in louisiana. born in the shadow of slavery, born in a time when luncheons work commonplace and when african-americans and women cannot vote. >> it took our country from the time of its founding to the
mid-19 80s to build up a national debt of 850,000,000,000 dollars which was the size of the so-called stimulus package when it came over here. so we're talking about real borrowed money. >> 30 years of coverage of the u.s. senate on c-span2. >> with a political primary season over, c-span's road to the white house takes you to this summer's political convention. watch the republican national convention starting on july 18 with live coverage from cleveland. >> so we'll be going into the convention to matter what happens and i think will be going in so strong. >> and watch the democratic national convention starting on july 25 with live coverage from philadelphia. >> let's go forward, let's win the nomination and in july let's return as unified party. >> and then we take our fight for social, economic, racial, and environmental justice to philadelphia.
>> every minute of the republican and democratic parties national convention on c-span, c-span radio, c-span.org. >> testified before the senate banking committee, federal reserve chair, janet yelling janet yelling discuss the possible effects of written leaving the european union and said that the fed is closely monitoring the bow. she also said that the fed is likely to keep interest rates low quotes, for some time. time. in the face of uneven economic growth. senator ritchie chairs this to an half hour meeting.
>> today we received testimony from federal reserve chair janet yelling for the semiannual report on monetary policy. while humphrey hawkins testimony is a key part part of congress' oversight of our nation central-bank, it is not sufficient to provide congress and the american public with the full picture of fed policymaking. i've often remarked during these hearings about the importance of striking the right balance between transparency and independence. one of the fed stated reasons for maintaining is independence is to avoid politicizing this decision. i agree that politics have no place at the federal reserve. while the line between politics and policy can be quite fine, it should nonetheless be clear and on ambiguous.
the feds should act, i believe in a manner consistent with the statutory mandate in the interest of the stability of the u.s. economy. whether or not such policies align with the goals of congress or the administration. our central-bank is independent and should remain so. the desire to preserve the fed's independence should not preclude consideration or additional measures to increase the transparency of the board's actions. the cover so argue that better disclosure monetary policy strategy could bolster independence. it earlier this year prominent group of economists, including three nobel prize winners agreed in a statement that and i will call, publicly reporting the strategy helps prevent policymakers from bending under pressure and sacrificing independence. the fed continues to resist
calls from congress even though it claims to use such rules regularly. it is public communication the fed has veered further away from data-driven analysis toward the exercise of even more discretion. for example, rather than a hearing precisely to its stated goals for inflation and employment, the fed will open a market committee appears to have a certain decision on factors such as quote financial and international developers that cannot be derived from quantitative analysis. similarly, the fed's feds were dilatory conduct is becoming increasingly opaque and complicated. this is demonstrated by the inherent complexity and overlap in capital and liquidity rules, stress testing and resolution and recovery planning. two weeks ago a ago a panel of experts testified before this committee that complex regulations might
actually increase rather than decrease in the banking system. they also criticize the lack of analysis and transparency in the rulemaking process. this is especially true of the rules established by the international committee and imposed by domestic regulators on our institutions. without adequate tailoring. the fed did not even to its own quantitative study as it did madame chair, for wanted to. it instead relied on the basel committee's analysis which included data from only 13 u.s. banks out of the 249 banks that were study. such an approach is concerning.
the feds should perform, i believe rigorous analysis, not only for each rule, but also on a cumulative impact on capital and liquidity regulations. if our banking regulation and regulators are unable, and unwilling to conduct such an analysis, then conduct such an analysis, then we should consider mandating it. even the european commission analyzing these factors in its predatory framework. in a recent recent call for evidence, it solicited feedback from the public quote to evaluate the interactions between financial regulations and assess their cumulative impact. we should expect no less from our own regulators. chair lady yelling, i look for tier testimony today and your thoughts on these important issues. i think. i think it is a very important hearing. >> thank you mr. chairman. madame chair, welcome back to
the committee, we're so glad you're here. since your last appearance the economy has made only modest gains, inflation remains low, job creation seems to have slow, the economies of our training partners are struggling, uncertainty most notably with are struggling, uncertainty most notably with the possibility of britain's exit from the european union and that certainly remains high. in the face of these headwinds you would think that politicians here at home would do everything we could to promote our economy. instead, many of them seem intent on doing just the opposite. my colleagues on the other side of the aisle are failing to invest in infrastructure and public works and research development, education and training, the very building blocks of economic success. at that were not enough they're trying their best to undermine the safeguards that dampen the economic crisis and were erected to prevent the next one. we'd like to read field that frank and return our country to the casino capitalism that caused so much ruin for families and communities across our country. they're trying to politicize and undermine the federal reserve despite the key actions that it has taken to
help the recovery. congress rated its reserves and reduce dividend payments in order to pay for transportation bill. many my colleagues are trying to insert congress into military policy decisions, this committee has yet to even hold a hearing on the two nominees to the board of governors of the federal reserve, and bad legislative ideas continue to multiply. the presumptive nominee of the republican party as a factory bad ideas. moody's analytics recently released a report that if adopted, his economic proposals will leave our economy quote significantly weaker, unquote. he suggested he replace the current fed share based on a match and partisan political consideration. that is a bad idea. you might argue someone is
feeling to pursue the right course and monetary regulatory policy, but partisan label should never be part of that discourse. the presumptive nominee. the presumptive nominee is suggesting he would simply renegotiate or renege on our debt, comfortable in the belief that the united states can never default quote because you print the money. in his opinion he understands that better than probably anyone buddy. his words, he also thinks with the runner-up for the republican nomination of that this country should return to the gold standard. when ron paul was promoting this idea a few years ago, the wall street journal reported a pull of a panel of of economists and whether a return to the gold standard would improve stability and on employment. the response was split between those who disagreed and those who strongly disagree. not one person thought it would help. so we don't know if it's just a bad idea or a really, really bad idea. but as one university of chicago professor put it love of the gold standard implies macro economic illiteracy. if your own very good brain is your top consultant i suppose
unanimous diverse group of economists does not count for much. but for those of us in the evidence-based world, the prospect of this nominee trading imagined for real authority gives added significance to what we do in the banking committee and what we do in congress. that is true in general, that's particularly true with maintaining the independence of the federal reserve and the other regulators and the financial services industry. madame chair, i think you've shown your commitment to an independent data driven federal reserve. i commend you for that. we are grateful for that. i hope we can work together to maintain it. >> madame chair your written testimony in its entirety will
be made part of the hearing record. we welcome you here today again, you're no stranger to this committee. and you here today again, you are no stranger to this committee. and you may proceed as you wish. >> thank you. chairman, ranking member, and other members of the committee, i am pleased to present the federal reserve's semiannual monetary policy report to congress. in my remarks today i will briefly discuss the current economic situation and outlook before turning to monetary policy. since my last last appearance before this committee in february, the economy has made further progress toward the federal reserve's objectives of maximum employment. while inflation has continued to run below are 2% objective, the federal open market committee expects inflation to rise to that level over the medium term. however however the pace of improvement in the labor market appears to have slowed more recently, suggesting that art cautious approach to adjusting monetary policy remains appropriate. in the labor labor market they cumulative increase in jobs since the early 22,010 has now topped 14,000,000. while the unemployment million. while the unemployment rate has
fallen more than five percentage points from its peak. in in addition, as we detail the monetary policy report, jobless rates have declined for all major demographic groups including for african-americans and hispanics. despite these declines however, it is troubling that unemployment rates for these minority groups remain higher than for the nation overall. and the annual income of the medium african-american household is still well below the median income of other u.s. households. during the first quarter of this year, job gains average 200,000 per month. just a bit slower than last year's pace. and while the unemployment rate held steady at 5% over this period, the labor force participation rate moved up noticeably. in april and april
and may however, the average pace of drop gains slow to only 80000 per month or about 100,000 per month after adjustment for the effects of the strike. the unemployment rate stopped at 4.7% in may but that decline mainly occurred because fewer people reported they are actively seeking work. a broader measure of labor market includes workers largely to the workforce and those working part-time who would prefer full-time work it was unchanged in maine may and above its level prior to the recession. of course it is important not to overreact to one or two reports. in several other timely indicators of labor market conditions still look favorable. one notable development is that there are some signs that wage growth may finally be picking up. that said, said, we will be
watching the job market carefully to see whether the recent slowing of employment growth is transitory as we believe it is. economic growth has been uneven over recent quarters. the u.s. inflation adjusted gross domestic product is currently estimated to have increased at an annual rate of only three quarters% of this year subdued growth weight on exports it was hard hit in a steep drop in oil prices since mid- 2014 in addition it was surprisingly weak. however the available indicators point to a noticeable set up in gdp growth in the second quarter. in particular, consumer spending spending has picked up smartly in recent months supported by
solid growth in real disposable income in the ongoing effects of the increases in household wealth. and housing has continued to go up gradually. it it is by income gains in the very low level of market mortgage rates. the recent pickup in household spending, together, together with underlying conditions that are favorable for growth lead me to be optimistic that we will see further improvements in the labor market and the economy more broadly over the next few years. monetary policy remains accommodative. low oil prices and to going job gains should continue to support the growth of incomes and therefore consumer spending. fiscal policy is now small positive for growth and global economic growth should pick up overtime supported by accommodative monetary policies
abroad. as a result, the fomc expects that with gradual increases in the federal funds rate economic activity will continue to expand at a moderate pace and make labor market indicators will strengthen further. turning to inflation, overall consumer prices as measured by the price index for personal consumption expenditures increased just 1% over the 12 months in the ending in april. up noticeably from its pace of much of last year but still short of the committee's 2% objective. much of the shortfall continues to reflect earlier declines in energy prices and lower prices per import. core inflation woods excludes energy and food prices has been running close to one and a half half%.
the transitory influences holding down inflation fade and the labor market strengthens further, the committee expects inflation to rise to 2% over the median term. nonetheless, in considering future policy decisions will continue to carefully monitor actual unexpected progress toward our inflation goals. of course, considerable uncertainty about the economic outlook remains. the latest readings of the labor market and the weeklies of investment illustrate one downside risk. in addition, although i'm optimistic about the longer run prospects of the u.s. economy, we cannot rule out the possibility expressed by some prominent economists that the slow productivity growth seen in recent years will continue into the future. vulnerabilities in the global economy also remain.
although concerns about slowing growth in china and falling commodity prices it or to have eased from earlier this year, china continues to face considerable challenges as it rebalance as its economy toward domestic demand and consumption away from export led growth. more generally, the current environment of sluggish growth, low inflation, and already accommodative monitoring policy in many advanced economies investor% cheers can change abruptly. one development that could shift investors sentiment is the upcoming referendum in the united kingdom. a u.k. vote to exit the european union could have significant economic repercussions. for all these reasons, the committee committee is closely monitoring global economic and
financial of elements and their implications for domestic economic activity, labor markets and inflation. alternet's to monetary policy, the fomc peaks seeks to promote maximum employment and price stability is mandated by congress. in in the economic situation i just described, monetary policy has remained accommodative over the first half of this year to support further improvements in the labor market and turn inflation to our 2% objective. specifically the fomc has maintained the target range for the federal funds rate at one quarter to one half% and has kept the federal reserve's holdings for longer-term securities at an elevated level. the committee's actions reflect a careful assessment assessment of the appropriate setting for monetary policy taking into
account continuing below target inflation and the mixed readings on the labor market and economic growth seen this year. proceeding cautiously and raising the federal funds rate will allow us to keep the monetary support to economic growth in place while we assess where the growth is returning to a moderate pace whether the market and whether inflation will continue to make progress toward our 2% objective. another factor that supports taking a cautious approach in raising the federal funds rate is that the federal funds rate is still near its effective lower band. if inflation were to remain persistently low or the labor market were to weekend, the committee would have only limited room to reduce the target range for the federal funds rate.
low by historical standards. if these headwinds slowly fade over time as the committee expects then increases are likely to be needed. in line with that view than the projections for the june meeting estimate less than 1% at the end of this year and 2% at the end of this year will be consistent with their assistant assessment of appropriate monetary policy. of course the economic outlook is uncertain so this is no means on a preset course and projections for the federal funds rate are not a predetermined plan for future policy. the actual path of the funds
rate will depend on economic and financial development and their implications for the outlook and associated risks. stronger growth or a more rapid increase in inflation than the committee currently anticipates would likely make it appropriate to raise the federal rate more quickly. conversely, if the economy were to disappoint a lower pass would be appropriate. we are committed to our dual objectives and will foster financial conditions over time. we are considering the policy of maturing treasury securities and principal payments from agency debt and mortgage-backed securities. as highlighted in the statement released after the june meeting, we anticipate continuing this policy of federal funds rate is
well underway. this should reduce the risk that we might have to lower the federal funds rate to the effective lower bound in the event of a future large adverse shock. thank you. i would be pleased to take your questions. >> mdm. chair, in recent years the fed has used forward guidance to shape market expectations. how are their incorrect predictions of increases caused it to lose credibility how would you rate the utility of your forward guidance over the past several months? >> in the past several months we
have used forward guidance less than we did in the aftermath of the financial crisis when we named calendar dates or gave explicit economic conditions that we would need to see prevailing in the economy we need to help participants understand how serious the crisis was. >> are you saying you're not using forward guidance now or you're not relying on it as much. >> were not relying very much on forward guidance. we do publish every three months or does up and projections for the paths of the federal sponge
rate that will be appropriate in light of expectations about the performance of the economy. sometimes those paths which participants discuss in their remarks are thought to constitute forward guidance about policy i believe those productions. if those conditions prevail they would see monetary policy is progressing and those paths while they are helpful are not a preset plan and not a commitment. we are trying to evaluate in
light of incoming information and you see those paths change over time and i think the critical part of monetary policy. >> has the slowing of the economy in certain areas caused you to hold back a little bit at times information that you see? >> so for quite some time now we've seen mix development in the economy. some sectors because of declining energy factors or strong dollar or a true offset. throughout the last couple of months the labor market has held up extremely well in the last
few months i mentioned a substantial slowdown from the first quarter and from last year, and it is important to see ongoing progress in the labor market so that is something we want to carefully evaluate and is the focus of our attention, but economic growth has picked up from a weak weak base and if that slowdown is a reflection of weak growth earlier in the year, i am hopeful that we will see stronger job gains going forward and while it is an important report i would also have the size that it's important never to overflow the significance of a single report or small amount
of data. in regard to the labor market i for see it will continue to do well. >> do you see a trajectory on the economy picking up or are you not sure yet. >> there is uncertainty about that and that inflation remains low and we watch economic developments and make sure the economy is on a favorable path before raising rates. >> it has been a one half percent or lower since december 2008.
in a report last year from the bank of international settlements found that the prolonged interest rates may be damaging the economy resulting in too much debt and too little growth. in addition they state that low rates may contribute to financial booms and busts. do you perceive that low interest rates can have negative effects on the u.s. economy. >> i believe that the persistent low interest rates have been keeping the progress, but of course low rates can induce house loads or banks or firms to reach for yield and can stoke financial instability and we are
very attentive to the possibility. i would not say at this time that the threats from low to moderate are elevated. i do not think they are elevated at this time. it is something we need to watch because it can have that impact. you mentioned that. i don't think we are seeing an undue buildup of the economy. we are looking at credit growth which has picked up but it is not at worrisome levels. we are monitoring for potential impacts on stability which i think is appropriate. >> mdm. chair in an interview earlier this month the governor stated that the fed is reviewing
the application of stress test to regional bank and he uses the word probably will exempt reasonable banks from the qualitative, last december they mention they were tailoring it but the tailoring turned out to be a restatement of existing policy. what assurance can you give that this current review is a meaningful effort to tailor it in a way that recognizes the different risk profiles of banks and if so, what do you expect those changes. >> we are engaging in a five. review. it has been informed by consultation with both financial sector participants and outside economists and i do think that you will see meaningful changes in suggestion that governor
cirillo made that banks that are subject to this might be left out of the qualitative portions of c car. still a stress test would be applied but the all qualitative part that really true capital planning that they might be exempted from that. i think that's very likely. we will look at other changes as well that as you said are designed to appropriately tailor it so that its impact is most significant for the largest and most systemic firms. it will be very meaningful to review and i believe we will be proceeding on it shortly. >> my last observation has to do
with the big referendum in the united kingdom onto whether to stay into the european union or start leaving. what is the real implication or can you tell at this point if the british were to leave the common market, could there be implications for the common market and for britain? >> it is a very important relationship that would be significant for the united kingdom and for europe as a whole. i think it would usher in a period of uncertainty and it is very hard to predict, but there could be a period of financial market volatility that would negatively affect financial conditions and the u.s. economic outlook that by no means is certain but it is something that we will be carefully monitoring. >> thank you, senator brown.
>> thank you mr. chairman. adam chair, i first think you for your role and i'm pleased that the fed has put out rulemaking templates for the two large insurance companies. i appreciate how quickly you have moved on this and your constructive dialogue with stakeholders. i think the response to your efforts made a huge difference in doing this right. this week a banking committee will have a hearing, a second hearing for quiddity roles. please discuss for us the approach to capital and acquitted the rules the largest banks, specifically these new rules have they made our financial stronger? >> i do believe the enhancements we put in place to these
requirements that are tailored by size and systemic importance have made an enormous difference to the safety of the u.s. financial system. the quantity of capital with the largest banking organizations is essentially doubled from before the crisis and the quality of that capital is very much higher in addition to imposing higher static risk-based capital and leverage requirements our stress testing and capital planning exercises are very detailed forward-looking exercises that are working to ensure that the largest firms and extremely stressful conditions would be able to go on supporting the credit needs of the u.s. economy of households and businesses and
i think this has been a very significant exercise and has resulted in far superior understanding by the firms themselves of the risks they face an improved managements of those risks. it's not sufficient to ensure financial stability. often liquidity is what disappears in the financial crisis. we have put in place, especially for the largest banking organization enhancements to liquidity through the coverage ratio and the funding ratio and so i think this also works to enhance financial stability. i think we have a much safer and sounder crisis prone system because of the enhancements that we have put in place. >> thank you. we have talked in the past about
how the current labor market data do not reflect what's happened to minorities where rates of unemployment are still much higher than the average. in your testimony today, you talked about minority unemployment rates and included a new section in the semi annual policy report with this data and a discussion of whether the gains of the economic expansion had been widely enough shared. discuss why the fed made this addition to the report. >> the federal reserve's job is to try to achieve maximum employment and broad gains in the labor market that are as widely distributed as possible. i believe it's very important for us to monitor how different groups in the labor market are doing to see if what we perceive is labor market improvement is
being widely shared and there are very significant differences in success in the labor market across different demographic groups. i think it's important for us to be aware of those differences and to focus on them as we think about monetary policy and the work that the federal reserve does in the area of community development in trying to make sure that financial services are widely available to those that need it including low and moderate income. >> that brings to mind a meeting i had just a few minutes ago with three people from my hometown of cleveland. three community leaders, about the lack of diversity in terms of gender and ethnicity and race and the lack of diversity in terms of ideas that are in many
of your 12 federal reserve's around the country including in cleveland. i would like to see, and i think many of us on the panel would like to see a more diverse federal reserve and employees discuss what you've done as chair of the fed. what more you can do to better address the financial needs of all americans as you reach into the community better. i know you've had a goal of doing that and you said that at one of our first meetings, particularly serving those underserved by the financial system. >> so i am personally committed in the federal reserve as an organization is committed to achieving diversity within our workforce and within our leadership.
i believe we have made progress. i am committed to seeing us make further progress and in order to make sure that we are taking all of the steps that we possibly can to promote diversity in economic inclusion i have launched an interdisciplinary effort within the federal reserve to focus on all of our diversity initiatives in terms of our own hiring, hiring throughout the federal reserve system and working to promote access to credit, our work in the payment system to foster better and faster payments, to promote financial inclusion. i do believe we are making some progress but i want us to make greater progress. the board of minorities currently represent 18% in women represent 37% of senior
leadership and that is relatively common throughout the federal reserve system that you would see similar numbers and we have worked very hard to increase diversity among reserve bank directors and directors on the branch board who made quite a lot of progress. at this point minority representation stands at about 24% of reserve bank and board directors, about 30% of women and it's a matter that the board focuses on annually in its oversight of the reserve banks that we regularly track our progress in increasing diversity in the boards of directors and it's something we will continue to focus on. diversity is an extremely
important goal and i will do everything i can. >> thank you, i last question i would like you to share with us in a continual way the progress you are making their, especially in the class c directors that they represent the community that it's not just in diversity of background but also of ideas. there are currently a record number of job openings, almost 6 million what do we need to do better? there are an enormous number of job openings and there is a certain degree of mismatch of workers who are looking for work with the job openings that are available and i personally have
been looking at job development programs and training programs, some of which are doing a good job trying to build the skills that are matching workers with jobs. i was recently in philadelphia and visited a very impressive program that is placing people in the job market into real jobs that can lead to upward mobility in a career in some of the philadelphia hospitals. i have seen such programs around the country that i think have been effective but obviously our job at the fed is to make sure we have a strong job market and that there are enough jobs that are being created and helping
that process, looking at training programs and educational opportunities, i think that is a piece of the puzzle as well. >> as you have from time to time mentioned, congress needs to do a better job in terms of investment and public works in infrastructure. you have also made comments from time to time about job training. can you give us more instruction on what we should do here? >> i'm not going to give you detailed instruction. i think this is up to congress to decide, but when one looks at either inclusion or inequality or more broadly the fact that we are suffering as a country from very low credit growth and disappointingly low productivity
growth and we think about the factors that over time influence productivity growth, the things that have long been identified as important our investments, both private and public and we have had private investment since the financial crisis but private and public investment, education and workforce development and the pace of technological progress which is influenced by the environment that contributes to innovation in the startup of new firms and research and development and other basic support. i think all of those areas should be on congresses list to focus on. >> thank you we think you for being here and think you for your service.
i had numerous conversations with your predecessor and i know the normalization process was announced in 2014 and it stated that the security that we had built up on the balance sheet would be held and they would run off the balance sheet. you basically announced today that we are embarking on qe for by reinvesting the proceeds and new securities which is a major policy change from where the fed has been in allowing these securities to run off and maybe i'm misunderstanding what you're saying but i thought i heard you say that when we reach maturity we are going to reinvest them
which is a policy change. is it not? >> it is not a policy change. that's long been our policy ever since qe three ended we made clear that we would reinvest proceeds and we been doing that ever since. we did say that as the economy recovers and the funds rate rises to a higher level than it is at present, a day would come when based on economic and financial conditions the committee would begin the process you just described is gradually allowing securities to wear off our balance sheet so we reduce things to a more normal level and we fully intend to do that but i can't give you a precise timetable to win that policy will begin. it's going to depend on how the economy evolves but a long time ago we put out a set of
normalization principles where we make clear that is how we would proceed and we would continue reinvestment until after we hid had begun the process of raising the federal fund rate and achieve significant progress there. >> thank you for clearing that up. i appreciate that. i know last time you were here we alluded to a negative rate and i know that's what's happened in japan and the eu. you were looking into the legality of whether you felt that you had the legal basis to pursue negative rates. have you come to conclusion relative to that? >> i believe we do have the legal basis to pursue negative rates but i want to emphasize, it is not something that we are considering. this is not the matter that we are actively looking at, considering when we looked at
that in the past we identified significant shortcomings with that type of approach and i don't think we are going to have to provide accommodation and if we do, that's not not something that is on our list. >> very good. i appreciate you clearing that up. obviously the japan and the eu have not had good benefit from that or at least not benefit that we can see. i appreciate you clearing that up. we look at the rule from time to time and we know the fed has not adopted it but there's a chart that tracks it and basically fed rates have been within a range. recently the biggest dichotomy that we have seen in years and years between the fed funds rate and what they would be if the data rule was being employed.
under the taylor rule we would be at 3.7%. that would be our target fed rate today. that's a big range difference. is that because of the headwinds that you have been alluding to and what you are generally seen in the market? >> yes i believe it's because of the headwinds. one of the numbers in the taylor rule reflects professor taylor's estimate of what we sometimes referred to as the neutral level of the fed fund rate. it's a level of the fed's fund rate that is consistent with the economy operating at full employment. that is something that by our estimate has been very depressed in the aftermarket of the financial crisis. discussions about secular stagnation are very much about
what is the level of interest rate that is consistent with the economy operating at full employment. i am hopeful that we will rise over time although i'm uncertain at the moment most of the diversions between our sittings and what would be the higher levels that would be called for really reflect the headwinds that have been facing the economy. >> the employment rate really is misleading, is it not relative to where we are in the labor market today? >> meaning that there is still a lot of excess capacity. i know ranking member brown was alluding to that. that equation is a little bit off just because you're not really feeling the employment levels even though the rates that we show are there, the involvement is not what we would like it to be.
let me just ask one thing, living wills. i know that under section 155 of dodd frank, the larger institutions are supposed to present living wills and you all are supposed to ensure that they can be resolved in bankruptcy. i was confused in that the governor recently mentioned that if the fed keeps raising capital level these institutions will downsize or become less complex and i'm confused on that. if the federal reserve institutions cannot be resolved in bankruptcy, are they going to do what section 165 of dodd frank gives them and tells them to do or you can rely on raising capital to have the banks do it themselves? >> we are suggesting that the firms at risk and another places
in the living wills in the last submission and there's a timetable for doing that. if the firms failed to address the decision or if later on by the summer of 2017 they failed to address the shortcomings we've identified and then we find them deficient, dodd frank does say that the f dic and the fed can impose higher capital requirements that are ultimately structural changes and we aren't insisting that the firms at risk are cave carefully identified. >> inc. you. >> thank you very much. it strikes me that over the last
several years you've had a very difficult challenge, we all have but we've been operating in some respects with one hand tied behind our back and that you've been pursuing new policy and reluctant to raise raise well rate while we have not had a comprehensive fiscal policy invest in infrastructure and other things and allows you the room to raise rates if necessary or to complement your activity in the point that you just made in response to senator brown is that this productivity gap is related to infrastructure because it takes two hours to get someplace amounts to lost ours to someone delivering a package. if it takes ten minutes that's productivity increase. you are in a position i think
that you are doing all you can but it's not enough. we have to stuff up. is that something that you would ten to sympathize with? >> i think in the united states and other advanced nations where interest rates are at very low levels, it's common to say that monetary policy and central banks that have been carrying the load in many parts of the world, fiscal policy, because of concern about large debt or deficits have not played a supportive role. i think we have achieved a lot in the united states. we have created over 14 million jobs. the unemployment rate has come down to 4.7%. inflation is still under 2% but i believe it's moving up. i think we're making good progress but if there were to be an negative shock to the
economy, and i mention this in my testimony, starting with very low levels of interest rates, we don't have a lot of money using our tried-and-true method to respond. if fiscal policy were more expansionary this level of interest rates, that's one of the factors that stands with policy that fix what level is neutral for the economy keeps it on an even keel in the level would be higher with a different stance of fiscal policy. >> okay we have made progress, i agree but not only could we have made more progress but we are at a point now where you've exhausted most of your leverage in a nonfinancial sense and if there was a shock when you have very little to respond with. >> we have the same tools that we used earlier, maturity
distribution and those are the tools we would rely on. >> just very quickly, the the other part of this dilemma is that in some places because interest rates have been so low there's a possibility of creating a bubble, for example driving people into equities because there's no return and the prices driven out not because of the underlying quality but simply that's the way they can get some money fast. are you concerned about that? >> yes, as i said earlier i don't see signs of extreme threats to financial stability at this time. this is something we monitor very closely but it is something that can happen in a low interest rate environment.
i don't think i see any broad-based evidence of those financial stability concerns but it is something that's possible. >> i have less than a minute. with respect to cyber security, it is is an increasing problem and in fact the federal reserve reports that you have been breached in some respect. just getting to the point, do you have the authority to require your regulated companies to put people on their boards that have cyber security expertise, and also also to publicly disclose what their cyber security general parameters are or something to indicate to the public that they are taking this seriously? >> it is a focus of our supervision. we do have standards that we expect financial institutions to meet and just what's expected depends on the complexity and importance of the firm.
so this is, we do do regardless is a very significant spread. on your question about boards of directors, i don't know that we have looked at that. i need to get back to you on that. we are certainly supervising financial institutions ability to address cyber threats. >> thank you madam chair for being here and for your service. >> madam chair, in april the fed finally released the results of the 2015 resolution plans of a systemically important domestic banking institutions and five of the nations largest banks failed that exercise including j.p. morgan chase and bank of america.
first the new york times in april described this release is stating that suggest that if there was another crisis today the government would need to hold up the largest banks to avoid financial chaos. western number one is your gray. question number is what today's five banks need to do october 1 to fully remediate their deficiencies and question three is, if they don't back tober first, will the fed take more systemic action like raising capital levels? >> so over the span of the last several years in which there have been preparing have greatly increased their ability to be resolved by bankruptcy or
alternatively title to is available. i couldn't guarantee at this point, it depends just what the circumstances are in which a bank fails that bankruptcy would work at this point as a means to resolve one of these firms. we have identified, for five of the firms deficiencies and we've been extremely careful and spelled out in details what those deficiencies are that we want to see remedied by october october 1. >> in addition, we have listed jointly a large number of specific shortcomings that the firms have until december of 2017 to remedy and we will be
monitoring very carefully and evaluating whether that is done and as i said, if they are not remedied or later if the shortcomings are not remedied, they could turn into deficiencies that would provoke us and lead us to impose higher capital standards or other remedies on these firms. i think we have learned a lot in the course of the years that we have been evaluating these living wills about what it takes to actually resolve a firm in bankruptcy. the firms have learned in this process and i do think we have made substantial advances in terms of being able. >> let me go back to my question, three questions. first in terms of the new york times quote needing to prop up
the largest banks, you would not categorically refute that possibility? >> well, i would not say at this point that all of them are prepared for resolution under bankruptcy. >> again if they don't get there for october 1, would you very soon thereafter consider something more systemic like capital requirements? >> my second last question, you have said you don't think the fed should be involved and i appreciate that and agree with that. however my concern is the fed has authority to be involved. do you think the fed has authority to issue as a last resort emergency loans to puerto
rican institutions? >> i think our authority is extremely limited and it wouldn't be appropriate for us to give loans to puerto rico. we have very limited authority to buy municipal that in the authority we have if we were to buy, i don't think it will be helpful to puerto rico and beyond that we have no way ability to make emergency loans. we could not use 133 or emergency powers of that type to extend a loan to puerto rico and i don't think it would be inherently a matter for congress and it's not something that is appropriate for the federal reserve. >> thank you madam chair. >> thank you for your service in your insight.
i always appreciate it. recently in the national public discourse, there are those who propose reducing the national debt by persuading predators to take a haircut on their investment. in my opinion policies like that would drive our economy off the cliff and endanger working families in our country. i don't know of anyone more qualified to answer this question than you. in your opinion will be the consequence if the president of the united states were propose holders of treasury bonds except left in the face value of their investment? >> so this is a topic that i have spoken on many times when congress was faced with the debt ceiling type situation. i feel the consequences for the united states in the global economy and defaulting on
treasury debt would be very severe. with treasury securities that are the most safest and liquid benchmark security in the global financial system would play a critical role in financial markets and the consequences of such a default, while they are uncertain, i think there could be no doubt that it would be harmful to the u.s. interest and at a minimum we would see a much higher borrowing cost for the american households and businesses. >> and if you should take a haircut, it actually means because you're not paying a full amount that you're obligated to on the security. just for clarification purposes, am i right, my understanding
that u.s. citizens and american entities such as state and local governments, pension funds and the federal reserve on the vast majority of u.s. debt? >> u.s. entities in foreign entities. >> okay my understanding is and i would like to get for the record is that just u.s. citizens in american pension funds, and others and for the record if you could submit that i would appreciate it. that means the majority will be taking a haircut as proposed by mr. trump and that would ultimately mean citizens and
local government and that's pretty outrageous. since the start of the financial crisis our economy has shown signs of growth and progress yet many data points indicate we are far from full recovery. in the past you have advocated for the federal reserve's use of a mac trick. that index which pulls data from different sources, workers that are classified as part-time for economic reasons has fallen nearly 15 points over the last five months. in fact the index has fallen to its global lowest level since 2010. my my understanding is that every other time the index has turned negative for five months or longer over the last 25 years the fed has moved to ease monetary policy, not tighten it. i'm concerned that given the path the fed has laid out for potential rate increases later this year and next the federal neither have the ability nor the will to tether the impact of this slowdown in the labor market. shouldn't the fed wait to consider additional rate hikes until we see indications of
growth in the labor market? >> so these numbers that a released on market condition index don't refer to the level of the index but rather the change and the move you mentioned in that index suggest not that the labor market i operating at a good level according to the level of that index which we don't publish, but there is a loss of momentum that's what those negative numbers show and we see the same thing in recent job reports that i refer to in my testimony. so without a doubt, for the last several months, a number of different metrics suggest a loss of momentum not due to deterioration but a loss of momentum in terms of the pace of improvement.
that is an important consideration as a mentioned. we believe that will turn around, we expected to turn around but we are taking a cautious approach and watching very carefully to make sure that expectation is borne out before we proceed to raise interest rates further. >> one final point, i want to echo what senator brown has said and in a letter that 120 members and 20 members of congress sent to you about improving representation at regional banks 92% of regional bank presidents are white. there is not a single president. that is fundamentally wrong. i would hope that you would share some diversity efforts
because leadership on this issue always comes to the top regardless of the institution. with your own experience as a woman and in that regard we seem to be doing better in the system, but we are not doing that much better with people of color. i hope you will seriously consider such an effort. >> i agree with you that it's extremely important and i will do everything i can to see that our performance improves on that dimension. >> think you mr. chairman, and thank you chair yellen. chair yelling, your predecessor chairman bernanke has discussed some of the limits of monetary policy of what it's capable of and what is not capable of. one of the things he said, i'm paraphrasing but i think he said this on numerous occasions is that accommodated policy is only stimulative in the sense that it brings economic activity forward in time.
it doesn't create new wealth or goods or services but it shifts the timing of economic activity. do you agree with chairman bernanke in that respect? >> it sometimes does shift the timing of economic activity and brings forward a decision that might have been made made later. i think policy also has repercussions that have longer-lasting impact on the state of demands. it's not only a matter of shifting purchases early by having more accommodating financial conditions. there are repercussions that can be longer-lasting than that. >> you may disagree, my sense of the academic consensus is that the main impact of accommodative monetary policy as is to help it
happen at an earlier time and that is the principal activity. you are acknowledging there is some of that phenomenon. >> there is some of that but it's not the only thing. >> to what extent is this on precedented monetary policy for this number of years now part of the reason we've had anemic growth today? is it very likely the case that some of the economic activity that would be occurring today was dragged forward in years gone by and it's already occurred in the past? >> so it's very hard to know how large that is, but i continue continue to think that our accommodative stance of policy, low mortgage rates is continuing to boost activity in the housing sector. it hasn't only pulled activity
to suppress it now. >> the housing sector has still not recovered. >> it underwent substantial loss >> how much of that is happening now because of this ongoing at the of having extremely low interest rates? >> we've not tried to determine that. we have, in the past looked at whether or not low rates have had less impact on spurring economic activity and namely whether or not there might be some continuation in the impact of policy, but in the past our analysis suggested that it is not only a matter of shifting
the timing with economic activity but also stimulating and spending decisions. >> even if that's so, my guess is that the principal affect is shipping the timing. i got the impression that his view was that it was shifting the timing. it certainly in effect and i think it's something the fed should be looking at. to the extent that that is a significant, what you're doing is damaging it going forward. let me touch on another concern. it seems from the many, from what you and others have said, there has been a great focus on the demand side of the effect of monetary policy and not so much on the supply side. one of the concerns that i have is the danger that first of all you've been missing the estimates on the supply side as well as economic growth overall. we are now 12 consecutive years
in which the fed has overestimated economic growth. they've been overly optimistic about the supply side phenomenon such as workers returning to the workforce and increasing productivity level which has not been happening to the extent that the fed has hoped. one of my concerns is that the inducement to expand capacity, the unnatural excess capacity which comes from this could get the fed into a vicious cycle where all that capacity creates excess commodities and makes it that much harder to hit your 2% inflation goal and creates this dilemma that's hard to get out of. is there a danger that low interest rates are contributive to that? >> i think investment has been running at a very slow pace. we have really not have the
creation of a lot of excess capacity. >> productivity growth has been slow because we've had very weak investment in the aftermath of the crisis and more recently, in recent months it has turned negative and extremely low outside of energy where we have the substantial cut back. i don't think in impact of low interest rates has been to stimulate investment. i think that's largely true in the united states everybody is in the business of low interest rates and they would suggest there's massive overcapacity and
i do worry that we've encouraged companies to take on massive amounts of debts to take on this overcapacity and it's just one of the many distortions. i think you for time. >> thank you for being here. and frankly i will do it again. : >> combining with bigger banks. my question is, do you see any problem with with the process
right now with regulation on our small banks and if so what are we doing about it. >> we are very heavily focused on trying to find ways to relieve community banks of undue burden. tailoring of our regulatory system and supervision system to suit the risk that an entity entails is a core principle for us of proper supervision so we have made very meaningful efforts to reduce the burdens of our examination, to reduce the complexity of the capital requirements that they face. the gripper process we are taking seriously and i believe will come out with meaningful proposals for relief and we are
looking at something that might be a significant simplification of the capital regime for those community banks. >> i think simplification it is important. are you happy with where the fed's right now right now in regards to community banks? >> i think we have made progress but will continue to focus on that. >> do believe that consolidation in the baking industry particularly, while across the board doesn't matter, is not a good thing? >> and you think the regulatory regulatory issues with a consolidated issue? >> i think they've been a number of factors contributed to it. this is a challenging environment for banks of low interest rate environment and profitability is also been important. >> in some cases some of the small banks are putting out utterly millions of dollars to
meet the regulatory issues that are brought up. i just want to get to your commitment that you're going to continue to work. >> absolutely. >> the consolidation bothers me big time especially when it pertains to this dates like montana that forces us to the big guys. i don't think that's that's really good for the consumer. i think think it should be their choice. they want to go that direction. international insurance rules that the fed has proposed rules for two non- banks with the police and feds moving forward with the international insurance rules. can you give me earn idea of when you think these might become the? >> i think there some ways to go in terms of the international work that is ongoing. we put out a few weeks ago advanced notice of rulemaking for the framework that we intend to take here in the united states.
we are in discussions internationally and of dancing these ideas but i think we are ahead of that processor. >> so i will take one more word and excite me not worded it correctly. >> do you have any idea when it would be done? >> know. >> will be done in this administration? >> i will have to get back to you. i do not know what the timetable is. you're talking about the international. >> yes, right. and how those. and how those are going to impact for instance ge is a non-bank it just curious as to figure out how that's going to come down the pipe. >> with ge we've already published a specific rule, it's not insurance. >> it's not an insurance company, what happens to those guys, this insurance rule will have no impact on them? what happens to the skies?
>> they are not an insurance company. >> i know but they have divested their financial banking part of their business, so what happens the movie for? >> that would be something they will take up. thank you mr. chairman. >> senator kirks. >> madam chair want to take you you are just talking about the advance notice i'm speaking on behalf of large illinois employers like us, state farm and allstate center collins and i have been working very hard to make sure it recognizes a great difference between the business of banking and insurance. i would say that the rulemaking heads in the right direction as we look forward to this, as i look look at the essence of the mpr, it seems like the key stress test was a 90 day window of liquidity that if i look at the details if you look at some
like state farm that it affects 80 million american families. you would say the stress would be, given the 2008 in various products, do you have enough money over 90 days to sustain your enterprise? i want to explore this common sense way of letting people know that this is the way we should go. i would urge you to follow in your direction of making sure that the normal fed culture of the bank regulation does not impinge with the insurance industry. >> we have tried to do that very much in developing this proposal. we we have put forward some conceptual framework and are going to be looking very carefully at comments before we proceed with more detailed rules
and the collins fixed was very helpful to us to design something that is appropriate for insurance and not bank. >> i think we have 60 days to comment and i will talk about members of this committee to also provide their comments and want to make sure they have a robust and strong insurance sectors. >> and we will look at those very carefully. we're trying to proceed in a very thoughtful and careful way based on state regulators the naic of the industry. >> the mpr is pretty well received. >> thinking. >> thank you mr. chairman and it's great to see. i'm going to try to get three questions and a respected by
minute rule. to make sure that all of our colleagues get a chance to ask questions. want to go back to senator leads point about cyber. i think senator gardner and the cyber caucus and think it's increasingly been a challenge for every institution, it the question was raised whether under provincial regulations we can make sure that the bank representation, bank bank boards and others have cyber expertise. i would hope your mood for today. almost lightly on my question my question to the issue around what happened at the new york fed that was through the swift system. that's evidenced by the cyber attack and it has some challenges nervously important to the international banking machine. does the new york fed for the overall veggie feel like you have enough ability to work with
swift to increase their cyber protections? >> we are part of an oversight group for swift. it is led by the national bank of belgium and many supervisors from different countries participate in that group and we also participate in that group. swift in the new york fed are working with bangladesh. >> but this will be an area that will exponentially grow in importance both in terms of the fence internal expertise and ensuring that we are working more closely with the overall banking industry to the game. i want to make sure get the others. a number of us have talked about how we generate additional job growth. one of the concerns that i have
is that particularly with the inside the public markets that we have seen an enormous rush over the last decade plus over the 90s and more particular in short-term is an versus long-term creation and in many ways this is undermined in the tenets of american capitalism as more people choose more institutions choose to invest in financial instruments rather than investing in lending the business institutions. as a matter fact i've seen some data that says it's as low as 15%. activities are actually geared toward supporting businesses. we have clearly seen public
companies a shift from 80% of the 1980s were 50% of profits were reinvested back into plant equipment and employees in r&d. now were seen seen 95% of corporate profits used for stock buybacks and dividends. we've seen some of the largest iconic tech firms with huge balance sheets going into the markets. billions of dollars to use not for r&d, but but to use share buybacks. i think there is an increasing consensus among ceos and's more sophisticated investors that this is long-term destructive to business and consequently to job growth. has has the fed into individually have any views on this challenge about short-term is him, is it a challenge and some of this movement around public companies away from investing back in their business and the prognosis here? >> we have looked very closely at investment spending and try
to understand why it has been so very depressed in the aftermath of the crisis. i think one reason for it is simply that the economy has been growing slowly. sales growth has been slow and many firms have found they actually do not need to invest very much in order to satisfy the demand growth that they are seen. the workforce has been expanding less quickly than it had been. when you you have a rapidly expanding workforce firms need to be hiring those people and they need to invest with the tools to be productive that others are already in the workforce has. a slowing workforce has also played a role but beyond that i. >> i would think there's been some level that was say the first thing that you shut down is your investment in
infrastructure and i believe that is a negative long-term. i will and hurts my five-minute request although i would ask for the public record that you come back, i am concerned on section 165 on the living wills, we have to move this process along. i'm concerned concerned about the level of disagreement between the fed and the fdic. i'll take that for the records others can get their questions. >> thank you. >> mr. chairman, thank thank you and thank you for being here today in this very informative. i want to go back to bracket and you also mentioned it in your opening comments. you said that that the u.k. vote to exit the union would have significant repercussion. can you go into detail of what that means and perhaps what the plan of attack what feds would do if it would pass two days from now.
>> so i said it could come i do not know if it would, but i i think it could have significant economic consequences by launching a period of uncertainty both for the united kingdom and possibly on the future of european economic integration, most analysis suggest he would be consequences for the u.k. and spillovers to europe more broadly speaking. i think the financial market reaction to the uncertainties would be unleashed by that decision could result in a kind of risk sentiment that we would see impacts on financial markets that we might see flight to safety flows that could push up the dollar or other so-called safe haven currencies.
i do not want to overflow the likely impacts but we are aware of them. we will watch them. we'll consider those impacts as we make future decisions on monetary policies. >> is there any reason to believe that if brexit were to pass that it would have an effect on the u.s. economy to the point that we would go back into recession? >> i do not think that is the most likely case, but we just don't really know what will happen and will have to watch very carefully. >> whatsit the chance of u.s. economy be in an recession by the end of the year? >> i think it is quite low. i think the u.s. economy is doing well and otherwise indicated that we are watching this recent slowdown in the job market carefully, my expectation is that the u.s. economy will continue to grow and we have
seen it pick up of a superstrong pickup in consumer spending and growth in the economy. if the weakness in the labor market the last couple of months was a reaction to earlier slowdown in growth, that looks to be reversing. i remain quite optimistic in the kinds of conditions that have been associated in the past with u.s. recessions, often that occurs when inflation is the economy is overheated and inflation has been quite high the fed has had to tighten monetary policy. we do not have any such conditions until now. households are much improved shape and while there are negative influences in the economy, particularly in manufacturing stemming from slow go to broad the low dollar commodity prices, very seriously
depressing causing job loss in the energy sector and slowing investment and growing, still overall the u.s. economy is progressing even with those negatives and i think the odds are low, it's really not what i would expect. >> thank you for your answer, a week ago friday think your ten year yield on japanese bonds and also on german bonds were negative. what impact does that have on the treasury yields with these investors, obviously looking for any kind of return to buy up our treasury bonds, what kind of impact is that going to have unarguable? >> it does tend to increase capital inflows into the united states which push down our treasury yield source is considerably higher but in absolute terms it is really quite low. differentials in the stance of
monetary policy also put impacts on the value of the dollar, the dollar has gone up around 20% against a broad basket of currencies since mid- 2014. and that has had a negative effect on our trade with the rest of the world and put downward pressure on hiring a manufacturing. >> are you concern of the fed submit raise rates that bond traders will ignore that reversing what you're trying to achieve by raising rates? >> i think one of the factors that goes into the influence of pricing if this is what you're referring to is that the anticipated path of rates and there some further increases built into market expectations and often the response of markets to what we do depends on
how our actual actions compare with those expectations. >> thank you. >> thank you mr. chairman it's good to see you again. i want to follow up on questions raised by senator corker and senator revere. as you know, dodd frank requires giant financial institution to submit livingwell documents that describe how these giants could be liquidated it in orderly and rapid way. in bankruptcy without either bringing down the economy or requiring a taxpayer bailout. a few months ago the fed and the fdic jointly determine the livingwell submitted by five of the biggest banks in the company were not credible. those banks must resolve the problems identified in the living wills by october 1, that's 14 weeks from now. if the banks failed to do that, the fed and the fdic have the power to reduce the risks posed by these giant banks by for
example raising capital standards or stricter leverage. these changes are critically important to avoiding another 2008 crisis. but the banks are unlikely to make them unless they believe that the fed and the fdic are serious about enforcing dodd frank. now i know by law you must consider increasing capital in higher level ratios. what i want today is to ask, can you commit that if any of these giant banks failed to resolve the problems in their living wills by october 1 that the fed will use the tools that congress gave you to reduce the risks posed by these too big to fail banks? >> we would have a very serious review of the living wills and we have clearly stated a set of well identified changes that we want to see by october 1.
now the decision about what we do if those deadlines are not met, those are decisions that my colleagues and i will need to look at very carefully, what is the appropriate sanction for doing that, but clearly we are very serious about wanting to see these deficiencies remedied and well aware that we have at our disposal the tools that you listed. so i cannot pre-commit today to tell you precisely what our response will be and we will work closely with the fdic as we have been all along, but we are extremely serious about wanting to see progress and certainly we will consider using those tools. >> so you are required by law to consider them, what i'm asking for is a commitment. commitment.
i have to say, i don't fully understand why you would make that commitment. these banks have known this is coming since dodd frank was passed in 2010. that is six years ago. they have been. they have been submitting living wills since 2013. there is no provision of the law for all of the extensions that you have given them so far. if any of these banks failed the credibility test on the fifth try they need to face some real consequences. otherwise why would they ever make changes if there are no consequences. >> will there will be consequences. >> well i very much hope so. when he found that these five things submitting living wills that were not credible, you said quite explicitly that each of these banks remain too big to fail and that if any one of them crash they would risk taking down the whole economy unless they got a government bailout. the entire goal of the liminal processes to push the biggest
banks to fix this fundamental problem. i am glad that the fed finally determined that some of these living wills were not credible. it is not going to mean anything if you're not willing to use the tools that congress gave you to force these banks to reduce the risk they are pushing off onto the taxpayer. i have a second issue to cover here briefly. then i want to follow up on senator brown and senator menendez question about diversity. i think diversity is very important. there is a growing body of research showing for example that gender diversity and leadership makes for stronger institutions. perhaps it is not a coincidence then that there is a stunning lack lack of diversity at her biggest financial institution. not a single one is led by a woman. while the fed's leadership is somewhat more diverse, it's not a lot better.
of the 12 regional fed presidents, tenormin. as you know, congressman and i along with hundred 20 park collects sensual letter a few weeks ago about the lack of diversity among the fed's leadership. i appreciate the response you sent us last week in which you acknowledge that greater diversity can help improve the fed's decision-making and that there still work to be done to improve diversity among the leadership. let me start by asking, does the lack of diversity among the regional fed presidents concern you? >> yes. i believe it is important to have a diverse group of policymakers who can bring different perspectives to bear. i think as you know is the responsibility of the regional banks class. see directors to conduct a
search and to identify candidates. the board reviews those candidates and we insist that the search be national and that every attempt be made to identify a diverse pool of candidates. we monitor those searchers while they are ongoing to make sure it's been done. >> but then let me just ask you about the outcome. because just as you said under the law when a new regional fed is selected by the regional board, that person must be approved by you and the others on the board of governors before taking office the fed were recently reappointed each and every one of these presidents without any public debate or any public discussion about it. so the question i have is if you're concerned about this diversity issue, why didn't you
use either of these opportunities to say enough is enough. let's go back and see if we can but a qualified regional president who also contributed to the overall diversity of the fed's leadership. >> so we did undertake a thorough review of the reappointments of the performance of the presidents and that is the board of governors have oversight of the reserve banks. their annual meetings between the boards bank committee and the leadership of those banks to review the performance of the president and there were thorough reviews. >> by your tell me diversity is important yet you just signed up with all these folks without any public discussion about it. i appreciate your commitment to diversity, i have have no doubt about it, i do not question it.
it just shows me the selection process for regional fed presidents is broken because the current process has not allowed you and the rest of the board to address the persistent lack of diversity among the regional fed president. i think congress should take a hard look at reforming the regional fed selection process so that we can all benefit from a fed leadership that reflects a broader array of both backgrounds and interest. thank you. >> thank you mr. chairman. thank you for being here today and i thank you for your hard work on behalf of all of america and frankly you have a difficult task and one that will not be any easier before the year is out from my perspective. i did find it quite interesting the opening comments of my good friend, the ranking member mr., senator -- from ohio he seemed
to suggest that the failure of the economy somehow dress on the shoulders of my party. i thought to myself that the american people are not really looking to assign blame for why the economy is so anemic in the so-called recovery hasn't truly reached into those folks living paycheck to paycheck. it would be easy for them to remember that at the beginning of the so-called recovery that the democrats control the white house, the senate, and the house until early 2011 what did they do with that trifecta? they created the most onerous regulatory stage in the history of our country. it continued until even last year when the administration proposed 80000 plus pages of new regulations according to the competitive enterprise institute within economic impact or cost to the economy of
$1.85 trillion. said differently, this anemic recovery, perhaps as anemic because the precatory burden created during the first couple of years. i would suggest to the people in my home state of south carolina were working paycheck to paycheck do not believe that we are actually having a strong recovery in the number seem to bear that out. first-time homebuyers down for the third consecutive year and that disproportionately impacts african-americans who have a home ownership around 45% so the challenge continues, the economy grew the first quarter by 1.1%. we saw a real income sense declined by 65 6.5%. americans eligible for and using food stamps is up over 20%. last month we saw 38000 jobs
created in our labor force participation late rate in 2007 was seven was 66.4%, 2010, 64.8%. you have to stop and say god bless you some of sneeze, is that okay with you sir? and in 2014, were have an for now. is this is fun topic. and 62.4% and 62.6 percent. i'll suggest that the numbers themselves bear out the fact that perhaps the in the make recovery is not a recovery folks working paycheck to paycheck. i do not know who is to blame but i can tie the american people want solutions more than plain. my question to you is as you look for the rest of this year, do you anticipate more for the
job creation numbers that's 38000 in the same month where we celebrated 4.7% unemployment rate only because 400,000 people stop looking for work so when you take a real unemployment number based on the 2007 labor force participation rate we would be at 9%. >> so we do expect further improvement in the coming year. the unemployment rate the unemployment rate fell substantially over the last year and jobs created in 2015 was about 235 or a a month perhaps we won't see as were getting closer to estimates we may not see job creation but i expect
continued improvement for broader measures of unemployment which you noted are much higher, some include include involuntary part-time employment. i expect further improvement in the labor market continues to strengthen. now the last jobs report and the last couple months of labor market performance was quite disappointing. my hope and expectation is that it is something that is temporary and will see that turnaround in the coming months. clearly it is something we will be watching very carefully. my expectations we will see improvements but will watch a very carefully. >> my last question has to do with full employment and how to reach that wonderful goal of full employment. when i i look at the numbers that are coming out of the need for skilled workers as well as stem workers, it appears that by 2020 we could
have a shortfall of 3,000,000 3 million or 4 million folks in the skilled labor force and about 5 million. my solution has more to do with the german model apprenticeship program i would have to hear if you have any solutions you'll be recommending as we look for the labor participation rate, the number of skilled jobs that will be available and the need to get our workforce trained in that direction. >> so going back probably to the mid-eighties, we have seen a persistent shift in the performance pattern and people with middle skills but doing jobs that can be offshore, outsourced, to skilled demand
for skilled labor. and the consequences that have been rising inequality, high return to education, and downward pressure on the wages of those who are less less skilled and middle income. i completely agree with you that education and training, perhaps apprenticeships are the type the type that are used in some european and other countries, these are ideas that really have to be considered if we are going to address what comes out of that which is even when you have enough jobs you have downward pressure on the wages and incomes of people in the middle and the bottom of the distribution. >> thank you mr. chairman i would suggest that we are going to have to have a national conversation of the quality of education in our country and the
necessity of a dual track. back in my days we had shop which was an appropriate of our education apparatus and perhaps we need to have that conversation again. >> thank you mr. chairman. and thank you chair. when you were here in february talked about corporate offshore in and the devastating impact it has had in my home state of indiana in a manufacturing towns across the country. the frustration remains. the decline in manufacturing employment is one of the factors that have led to a shrinking middle class. we have two economies in this country, the the overall economy might be doing well enough and the wealthy are richer than ever. the middle middle and working-class families are not feeling the recovery. wages have been stagnant for years. a recent report said since 1971 each one each decade has ended with a smaller share of adults live in a middle income than at the beginning of the decade. was a state of the economy for working families? >> will i would agree with you that for decades now we were
just discussing there has been downward pressure on the incomes of less skilled individuals of the kinds of jobs that once upon a time were pretty readily available saver high school educated man and manufacturing has gradually diminished. there has has been a long-term trend, part of it is due to just a technological change that is consistently raise the demands for skilled workers and reduce the demands for less skilled workers. and i think globalization has also played some role. more recently slow growth in foreign economies, the strength of the dollar which really is
reflective of the u.s. doing better on balance than other countries. >> i understand all of these reasons but these are real people as you well know. there is an article not too long ago in the paper about, he was making about $70 per hour at the plant. he got fired because they shipped his job to mexico for $3 per hour. but the ongoing ripple of that was that his daughter who had applied to the indiana university, got accepted. she found out that her dad was in a lose his job and she said i don't think the family can afford for me to go to college like this. that is devastating. that is the future of america. that is what the real impact of all the stuff is. just is. just in the past few months. these are not because companies are not doing well, they're doing really well. but in the town next to my hometown, elkhart, 200 job
shipped overseas. 700 jobs, huntington indiana, the biggest county in the state shipped to mexico for $3 per hour, wages. 1400 out of indianapolis. very profitable company companies. these folks folks are making 13, 14, $17 per hour. so as long as we have the mousetrap like this, how do we ever get the middle class up if even $13 and too much in these companies. >> so these are very sad situations. >> they are wrong situations is what they are. >> i mean the kind of thing that you are describing imposes terrible burdens on all too many american families. >> how do we make america work for them?
>> part of it is trying to make jobs, we can't stop all shifts occurring across sectors of the economy. >> let me ask you this, do consider that a shift? when company is doing really well in somebody's making $13 an hour, not much much above minimum wage but lose their job because our laos allowed them to ship them to mexico for $3 per hour. is that a shift question? that's not really a shift in technology. that is just a cold-blooded decision that americans don't count as much as the profits. >> quote those forces have been in play for quite some time. for our part we are trying to create a job market where there
are enough, they can see opportunity that people who lose jobs in one sector are able to find them in the sectors of the economy that are expanding. sometimes to make that transition is difficult and it may require retraining or other forms of help to connect with available job opportunities. sometimes we know that kind of a job loss does cause long-lasting -- >> it seems like taming the system to want to make your product somewhere else in the hope that you can sell them back to hear to the united states because your hoping that other people will be happy to pay the 13-dollar or $14 now or wages so you have enough customers, you are just going to gain so that you can pay the $3 and get your products back in here and it's like you get it on one end to
any get it on the other. and that just seems incredibly irresponsible to me. >> thank you mr. chairman. madame chair, welcome. as i listen to your monitored policy report it strikes me that the ranking member indicated earlier that we talk about productivity growth and the need for both public and private investment, that requires the dollars come from someplace. i would like your thoughts on just in terms of on the basis of what the joint economic committee had reported this year and they indicated that nine, let me put it this way ten years from now 2026 by the ways the two and a 50th birthday of her country, we can look forward to, under current conditions 99% of all coming into the federal government, highway taxes,
personal taxes, 99% is going to go back out 22 categories. interest on the federal debt, and mandatory payments on entitlements. that does not leave a lot for public investment and clearly does not drive private investment. you are working on short-term activity right now and you are monitoring very closely. you are on a day-to-day basis following the economy right now which as you suggested is doing very well yet i think some of us would disagree that three quarters hardly seems appropriate. i know you optimistic about the second being better but even if it's doubled or tripled, we are not going to grow our way out of this crisis which is coming upon us. i like it that's because right now were looking at areas in which if we want those jobs to come back and if we want it wages to rise we are going to be in a position we actually grow
this economy once again. tax policy, predatory reform, actually managing our entitlements, all seem credible but we haven't talked about it at all. we don't seem to have a place where we can. can you as an impartial individual in this process who watches our economy grow or falter on a daily basis, can he talk to us about the need to do something now to where the crisis in ten years? >> why think we all know and we have known for a long time that with an aging population and with healthcare costs that have by and large risen more rapidly then in relation that we face a situation where we would have an unsustainable debt path and that this would require reforms, as
you say medicare, medicaid social security, those three program. >> so what you're saying is the affordable care act needs to be reformed that's part one. >> why didn't say anything about the affordable care act. i'm saying the entitlement programs need to be considered how to put those on the sustainable basis. >> would be fair to say they need to be managed? >> they need to have congress look at both revenues and the structure of expenditures to ensure that those programs remain sustainable in the overall federal budget and debt associated with that remain on a sustainable course because as you go further with an aging population, as you said the debt ratio is rising simply
unsustainable is it fair to say over the long term basis right now the interest rate that we pad the federal level goes up to 50-dollar a year increase being paid out. it looks to me like simply addressing a beginning the process of slowing down the is increasing the federal debt. recognizing that we cannot just say over a one day. a timer today. of time we have all the answers, but most certainly we are have to grow our way out of this, is that fair to say? >> is certainly would be desirable if the u.s. economy were growing at a faster rate. you cited a very depressed number for first-quarter growth over the last four quarters the average growth has been about two and a half, 22% in over a
quarters it has been about two and half%. so smoothing through the ups and downs we have been experiencing growth of two and two and a half%. >> and were not going to grow our way out based on that number are we? >> we would certainly have to do better with that, and that is in matter productivity essentially being quite depressed, relative to the levels that we enjoyed in the second half of the 90s. so, it is not certain what is responsible for that, but many factors come into play. we have had depressed levels of investment. we seem to have a depressed rate of business formation, the sort of technological change as it shows up and output gains seems to have fallen relative to those
better times. and through a range of policies -- >> madame chair my time is up and it looks to me like what we're given us is a wake-up call about a crisis that is not ten years from now, it's now. >> well it is a very serious matter that productivity grosses so slow. yes i want to want to highlight that. >> thank you madame chair. >> thank you. senator donnelly was reason a concern about manufacturing jobs in america and a dinner tray policy has given full access to our market to go to those manufacturers by companies and countries that do not have to buy by the same labor laws, the same wage rules, the same enforcement, this is a very unlevel playing field for american manufacturers to have a devastating impact on the loss is extensive. is that really fair to the american worker to have american companies having
to compete against companies that are loud completely different set of standards that lower their cost or medically? >> i guess i would just say that in the view of most economists, more open trade creates net benefits, but that that does not mean benefits for everyone. there are gainers, but there are also losers and that is certainly. >> is that fair to the manufacturing workers? >> well, i think it's important to have policies that address the losses. >> since the mid- 70s, 1975 until now virtually 100% of the new income has gone to the top% of the leaving nine out of ten americans in our economy out in the coal. this is substantially a a reflection of the shift of manufacturing overseas. we have a series of geostrategic
decisions and wanted to nurture the recovery of japan. we wanted to pull china out of the soviet bloc and now we want to pull the rest of asia away from china. is there an understanding within the fed how the cost of these decisions upon the welfare of american families and through loss of living wage jobs? >> what we have certainly looked at this question of wage inequality, income inequality. we collect data on our survey of consumer finances is one of the key data sets that gives us insight into what is happening. academic work on this topic while it has focused to some extent on trade more broadly, it also looks at the importance of technical change that the nature
of technological change in recent decades has continually shifted the demand away from less skilled workers toward more skilled. >> technological change has occurred, the shipped overseas has been due to lower wages not to technological change. in fact they have been talking about shipping him overseas and its pain well. that's an issue trade policy. so in a situation where as you point out there is more higher skilled demands, demand for higher skilled jobs and education becomes very important. but as compared to other developed economies, higher education be higher skilled training or college, it is far more expensive. it is the single factor more than
healthcare that is going up faster than inflation in our economy. such that not only is it daunting for students from blue-collar communities like the 1i live in or getting the message that there is not an affordable path to fill their goals in life and statistically we see are students who do pursue education burdened with debt is having a profound impact both on delaying marriage and unclean homeownership which is the major engine of wealth for the middle class. so we see this high cost of college and that seems to me like the type of structural concern in our economy that the feds should be using as economic expertise to highlight the longtime term and devastating impacts for the skills needed for the economy of the future. but i do not hear the fed talking about that. >> we are looking at trends in student debt and to believe we will be hosting a conference this fall and looking
particularly at what it means for low and moderate income households. >> now over these last few years i've had so many questions in which the response is always been that something were looking at. it would be nice to have a representation of the big challenges to our economy because the fed has the expertise to put their hands around the and to project that around their policy debate. i will just close since my time is expiring by saying one of those issues that have raised multiple times is the feds power of the conflict of interest in the commodities, the ability of large institutions taught on pipelines and ships full of oil, own warehouses of aluminum and each time i hear were looking at that. we actually going to do something about that? >> we will come out with a proposal on that. but some of that reflects
decision congress made an outside policy. it's true. >> madame chair thank you for joining us this morning. i i would tell you my conversation there is a very few i've had very few conversations who sees their economic future brighter, they're more disillusioned, no one feels more secure in their job. no one feels like their children have a brighter future. their parents are concerned about the children's opportunities when they graduate from school. the ability to pay back student loans, worried worried about saving for their own retirement. people are worried about having enough income and savings to pay for healthcare emergencies. so the sense of an economic recovery is far from being felt universally when i visited
across our state. i wanted to raise two questions. one apart circumstances related to significantly lower agricultural commodity prices. significantly lower prices and oil production, natural gas production, and part of that is a consequence of, i assume the value of our dollar in comparison with other currencies in our ability to promote exports certainly with agricultural commodities although it allows for the export of oil as well. where win the dollar value of our dollar? what is the immediate expectations for us to be able to jumpstart the sale of wheat, cattle, corn, and other products, airplanes that are manufactured in her state, that seemingly are not able to access those markets in part because the value of our currency. >> value of the dollar has
increased significantly since 2014. partly that reflects the fact that the u.s. has enjoyed a stronger ricotta recovery then other advanced nations and that has created an expectation that the u.s. interest rates will rise at a more rapid pace another parts of the world and that has floater assets that is pushed up the dollar. more broadly the the trends you have seen in commodity prices i think reflect a larger set of global forces. in some cases we have seen significant increases in the supply of commodities in the case of oil. the rapid growth of u.s. ability to supply oil markets has been a factor. then there is is been a slowdown in global growth.
particularly in china which is been an important consumer of so many commodities. china is on a path and is understood to be in this will continue a path of slowing growth and the plummet that you see the commodity prices plummet, many commodity prices just because a basic supply and demand the dollar make some difference to that as well. >> we often talk about export trade agreements, has the fed when he expressed other countries to manipulate two exports? >> the responsibility for currency policy rests with the secretary of the treasury and we do not weigh in on that. >> madame chair let me ask you about something in your testimony, you indicate that
business investment outside the energy sector was surprisingly weak. would you indicate to me and elaborate on the factors that lead you to that statement and when you exclude the energy sector, is that just because of definition, or something happening in the energy sector that indicates investment? >> well, drilling drilling activity has been very important and it is counted as part of investment activity. so what the huge plunge in oil prices even though there has been some recovery, we have seen the number of rigs in operation just plummet. that is part of why aggregate investment spending has been so weak. we understand that unexpected because it reflects the decline in oil prices.
even when we go outside the energy sector or other sectors that are directly related to energy and supplying inputs to it, investment spending recently and this is just a report on the date. i don't have a story a story to offer you on why this is happened. it has been surprisingly weak over the last several months. it hasn't been very strong investment spending generally. we talked about this earlier during the recovery but it has been and we think we understand some reasons why it is generally been weak, mainly slow growth unless rapid increase in the labor force. but it has been surprisingly weak in recent months. it is something we are watching and i cannot tell you just what that is. >> i would not expect you to say this but in my view, in part the lack of investment or the reduction investment is related to a wide array of
circumstances, one would be the debt and deficit, the uncertainty of our economy, lack of economic growth, generally the economic indicators are down trending not of trending. a sufficient number of times to instill a sense of confidence. the next regulation that may come their way as a business person. just just of decisions to make investments. people are deciding it's more risky to investment to not. >> will those things are certainly mentioned by business people. in recent quarters corporate earnings have also been under downward pressure for a variety of reasons. >> while i would conclude my remarks by indicating that one of the places we are to focus our attention is on innovation start a business, new entrepreneurs. the uncertainty that they face is even more of a dramatic consequence than a larger business that can better internalize and handle. mr. chairman, thank you very much. >> tank you. thank you chairman for being before us again. i want to to
return to some of the earlier discussion of the so-called tran3, the referendum that will occur on the united kingdom on thursday whether great britain should remain or leave the e.u. your testimony on page four says quote one development that should shift is the upcoming referendum in the out kingdom. vote could have significant economic repercussions. could which used stressed. that sounds to me like the usual prudence and caution that you use in all of your public statements. you also stated to senator heller that quote, i do not not want to overflow the likely impacts. that reminds me of yoga berra's old advice that predictions are hard to specially bout the future. >> that is absolutely true, not a group that more. yet in the last few minutes, here's here's how the guardian
of london reports your testimony to the committee. quote, yell and warrants on transfer three. not exactly what you said was it? >> i said we were monitoring it and it could have consequences. you would not count that as a brexit. >> it means i am not attempting to take a stand that they are going to go to the polls. they've had active debates on the issues and i am not providing advice in that sense. >> good. thank you. i sympathize when headlines do not except only captured the exact meaning of what one says. to be fair to the guardian, they are not the only outlet that has reported the testimony along those lines. the bbc, and others have as
>> there is no close parallel to live with these consequences domestically and globally in the search in the environment. >> many of my elected counterparts have not treated the matter so evenhandedly. also they were responsible in recent years like the greek debt crisis and with the suspension with the flow of migrants infiltrating the flow with parts of their european union with european and global economies. >> absolutely.
>> is there a risk some of that dire predictions gore reactions could be a self-fulfilling prophecy? some have threatened immediate tax increases or budget cuts as some continental leaders have threatened punitive action if the u.k. votes the way they said they would give it back for any new trade agreement to these have the potential to have a self-fulfilling prophecy for the outcome on thursday? >> that want to comment on what was said for the british people. there is an active debate it isn't a program with with this decision of the
consequences i am not offering myself. >> nor am i. won its final point but it said they're ready for all contingencies can you say everything about the federal reserve you are ready for the vote? >> in the sense you can closely monitor the economic consequences would be i am prepared to act in light of that assessment. >> should then it you k leave date you should they handle that with magnanimity and generosity and friendship among nations?
>> it would be my inclination to do so. >> madam chair we will move to custody banks like state street and new york ballot and others it is reported that they have turned away deposits or are charging fees because of the enhanced supplemented leverage ratio and you have seat -- read some comments for them to accept those deposits. is it fair to examine and how could that increase say risc? and what did day custody
bank verses a retail bank? >> because the bank manages the transaction is very important to the system and we are very aware there are concerns about supplementing them leverage ratio -- ratio. they are normally intended to be a backup form of capital regulation they are not oriented toward a risk of assets for the balance sheets with the minimal amount of space is required for all assets so those that
oppose -- have large quantity of state assets it can be a burden and something we would monitor but this is the way leverage ratios are imposed against all of the assets over all sizes of the organization. >> madam chair thank you for your purchase a patient to know what has been long but the explorer appearing before the committee. we are adjourned. [inaudible conversations]